Fed employee group calculates lost benefits under chained CPI

President Barack Obama’s proposal to change the way retirees’ cost-of-living adjustments (COLAs) are calculated has drawn the ire of federal-employee groups and unions.

The White House’s 2014 budget request calls for the Labor Department to adopt a “chained Consumer Price Index” to calculate annual inflation. The new formula assumes that as prices on household goods and services increase, people opt for lower-cost items — which is expected to reduce annual COLA increases by 0.3 percentage points a year.

While that may not sound like a lot, opponents of the plan, which include many federal-employee unions and groups, say that the reduced COLAs would pile up over the years eventually resulting in dramatic reductions.

“Don’t be fooled by economists and politicians who claim that switching to the chained CPI formula for Social Security benefits, retirement annuities and disability insurance is ‘painless.’ While the short-term reduction in benefits may be modest, the long-term reduction will be substantial,” Joseph Beaudoin, president of the National Active and Retired Federal Employees (NARFE) Association said when the budget was released last week.

Now to underscore the group’s point, NARFE has released a “calculator” designed to show retirees and policymakers how much retiree benefits would be reduced over a range of years.

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For example, the median annual benefit under the Civil Service Retirement System (CSRS) is about $31,440, according to OPM statistics. Under the chained CPI, retirees would miss out on about $1,500 after five years due to reduced benefits, according to NARFE’s calculator. After 15 years, that would balloon to more than $14,788 in reduced benefits.

The White House stated that it would take pains to ensure the COLA changes would “protect the most vulnerable” by including “protections for the very elderly and others who rely on Social Security for long periods of time,” according to the budget release.

Chained CPI hearings planned later this week

All told, the White House has estimated it would help reduce the deficit by at least $230 billion over the next decade.

Meanwhile, on Thursday, the House Ways and Means Subcommittee on Social Security will hold a hearing on the chained CPI proposal.

In contrast to most Democrats and employee groups, Republican lawmakers are more open to the proposal.

Subcommittee Chairman Sam Johnson (R-Texas), who announced the hearing would take place, said Obama’s proposal could strengthen Social Security.

“The inclusion of chained CPI in the President’s budget is a welcome acknowledgement that we must take action to shore up the program for future generations,” he said in a statement.